Wall Street loves lottery winners

You can live like a millionaire even if you aren't one

ARROYO GRANDE, Calif. (CBS.MW) -- Last Thursday Geraldine Williams was a nobody. Well, not completely. She was a grandmother to eight kids and a housecleaner to people around Lowell, Mass. But Geraldine was not in the hot-prospects database at the Lowell offices of Morgan Stanley, Merrill Lynch or Schwab.

One day later and her world suddenly changed. In fact, I'll bet Wall Street's vultures descended on her with a vengeance right after Friday's press conference announcing she was the sole winner in a $294 million multistate lottery.

Watch out, Geraldine, when the limos show up while you're cleaning that house you're doing this week, you know you're in big trouble.

So one day, poor Geraldine's a nobody. And the next she's somebody big on Wall Street's radar. In fact, don't be surprised if we hear that a senior partner of one of the vultures flew up to Lowell over the weekend to give her "the pitch."

Everyone knows Wall Street prefers investors with assets of at least $10 million. There are 100,000 of those in America, says Ernst & Young. There are also 8 million Americans with a million dollars or more in assets. The bulk of America's wealth is concentrated in the hands of these people.

For example, a whopping 35 percent of America's total net worth is controlled by just one percent of the people, with 85 percent is controlled by the top 10 percent. The rest of the population have very little: In fact, almost half of Americans have less than $50,000 net worth and 25 percent have less than $10,000. Worse yet, the average household's net worth is only $15,000, exclusive of home equity.

But don't blame Wall Street for targeting the top 3 percent, or top 10 percent when they get real hungry. And don't blame them for flipping off the rest of America.

Remember their motto: greed is good. So they have to target the prospects who have the money to pay their high fees. And conversely, Wall Street pays little attention to the other 285 million Americans who aren't millionaires and don't light up Wall Street's radar.

So let's assume you're one of the 285 million Americans who aren't millionaires and probably never will be. Now I want to twist this around for you, and tell you how the real millionaires do it. That way you might still improve your lot even if you never make it on the hot-prospects list of some prestigious Wall Street firm.

Here are the eight great lessons I got from financial adviser Ric Edelman's "Ordinary People, Extraordinary Wealth," a study of five thousand millionaires:

Lesson No. 1: Millionaires spend 7 minutes a day on finances

Wall Street and the media want you to believe that financial success takes a lot of time to master. Bull. Edelman says the average millionaire spends only seven minutes a day on finances. And only five percent spend more than 10 minutes a day. Edelman's bottom line: "The more time you spend with money matters, the less successful you are."

Lesson No. 2: Millionaires ignore the media

Another dumb myth says investors need lots of information to be successful. Wall Street wants you immersed in television and cable, online and software, magazines and newspapers, analysts reports, the Fed, on and on. Real millionaires ignore the media, they know the media only confuse and mislead people.

Lesson No. 3: Millionaires buy and hold, no trading

Research studies prove over and over again that market timing is a losing strategy. The more you trade and time, the less you earn. Edelman notes that many investors say they buy and hold but still time the market in subtle ways, investing based on predictions and hunches about shifts in interest rates, inflation, monetary policy, political shift, social crises, war threats, etc. That's still timing. Stop. Save and invest regularly, on autopilot.

Lesson No. 4: Millionaires ignore indexes and experts

Wall Street focuses on the big blue chips in the Dow and S&P 500, their investment-banking clients. Investors don't trust themselves, so they look for some outside authority, some expert, some guru, some external benchmark to measure their success, to measure their worth as a person! Focus on your own personal goals. If your goals are set right, and if you're meeting your goals, then you'll be happy says Edelman.

Lesson No. 5: Millionaires invest in stocks

Here's one lesson that'll make your eyebrows rise: 87 percent of millionaires have nothing in bond funds and 90 percent have nothing in employer stock. Create a well-diversified stock-fund portfolio and stick with it, no active trading.

Lesson No. 6: Millionaires build wealth a little at a time

Edelman says "anyone can turn a million bucks into two million. The trick is to get that first million." Millionaires do it using simple guidelines: You start investing young, you save regularly, you invest in small amounts, you invest intelligently. Nothing stops the millionaire from saving and investing regularly, not marriages, school, health problems, new jobs or losses, moves, children. Nothing.

Lesson No. 7: Millionaires have home mortgage

There are a lot of benefits in homeownership and having a mortgage: Credit rating, tax deduction, and equity appreciation. Do what the winners do: Keep your money, and keep it working.

Lesson No. 8: Millionaires involve their kids

Money is today's biggest taboo, bigger than sex and drugs. It's still tough for most people to discuss money issues, especially where it counts most, in the family. Take responsibility and teach your kids to be responsible about money. Get them involved. Get them thinking. Get them in the habit. It's never, never too early. Start today.

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